Paycom Software, Inc.

Good afternoon. My name is Lauren and I'll be your conference operator today. At this time, I would like to welcome everyone to Paycom's third quarter 2025 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on the telephone keypad. If you would like to withdraw your question, please press star plus two. I will now turn the call over to James Sanford, Head of Investor Relations. You may begin.

Thank you and welcome to PACOM's earnings conference call for the third quarter of 2025. Certain statements made on this call that are not historical facts, including those related to our future plans, objectives, and expected performance, are forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this conference call. While we believe any forward-looking statements made on this call are reasonable, actual results may differ materially because the statements are based on our current expectations and subject to risks and uncertainties. These risks and uncertainties are discussed in our filings with the SEC, including our most recent annual report on Form 10-K. You should refer to and consider these factors when relying on such forward-looking information. Any forward-looking statement made speaks only as of the date on which it is made, and we do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. Also during today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA, non-GAAP net income, and certain adjusted expenses. We use these non-GAAP financial measures to review and assess our performance and for planning purposes. A reconciliation schedule showing GAAP versus non-GAAP results is included in the press release that we issued after the close of the market today and is available on our website at investors.paycom.com. I will now turn the call over to Chad Richardson, Paycom's CEO and President. Chad?

Thanks, James, and thank you to everyone joining our call today. I'll briefly comment on third quarter results and recent product innovations. I'll then turn it over to Bob for a review of our third quarter results and our full year guidance. We will then take questions. Let's get started. Third quarter results came in strong with double digit organic recurring revenue growth and continued margin expansion, setting us up to exceed our full year financial plan for 2025. In addition to strong financials, we also executed the launch of our award-winning and industry-first command-driven AI product, IWANT. Now enabled across our entire client base, IWANT is transforming how our clients and their employees engage with their HR and payroll data. IWANT has already successfully responded to millions of queries from employees, managers, and executives, extending the power of our full solution automation. We are seeing a dramatic uptick in usage, especially among new users, which include the C-suite and newly onboarded employees of our clients. The intuitive nature of IWANT means new employees no longer need training on the system and are able to utilize the full solution upon hire. I'm particularly encouraged by the engagement we are seeing among the C-suite. Traditionally, executives have not been daily users of HCM Solutions. With IWANT, thousands of C-suite executives are already pulling data and insights directly from the Paycom system, and the feedback has been phenomenal. I'm confident that command-driven functionality is the future for all software. Betty is another example of automation that delivers significant ROI and is driving new sales. This award-winning payroll solution reduces payroll processing labor by up to 90%. while also cutting the time spent correcting payroll errors by up to 85%. VETI not only protects employees against insufficient funds by ensuring the payroll is correct prior to payday, it also eliminates human interaction with non-revenue generating tasks associated with voided payments, check reversals, ledger updates, and post payroll adjustments, just to name a few. VETI also enhances payroll compliance, ensuring accurate tax withholding, along with wage and hour accuracy, which reduces employer liability because employees have control over the accuracy of their check. Additionally, automation and perfect payroll with Betty is also attracting former clients back to Paycom. Recently, two clients who were not previous Betty users came back to Paycom thanks to Betty. One of these was a large auto group who, after leaving Paycom, had numerous issues processing multiple payrolls across their more than 25 locations that impacted their employees. They quickly realized the mistake they made and reached out to us to come back. Upon their return, they were quick to adopt Betty because of the payroll automation and paycheck transparency. The second example of an organization returning was a manufacturing company whose employees quickly voiced frustration over the switch away from Paycom, especially managers who lost access to the information they were accustomed to, resulting in a slowdown in revenue-generating work. This organization pointed to Betty as a significant reason for the return and a game-changer with 100% accurate payrolls, thanks to Betty identifying and notifying employees of items that need attention prior to payday. Betty continues to be a powerful differentiator for us in the market as we continue to drive even more automation and deliver very strong ROI to our clients. To facilitate the automation experience, including IWANT and future AI developments in the pipeline, we significantly expanded our data center capabilities, spending roughly 100 million of AI-focused CapEx on our Phoenix and Oklahoma City data centers. We front-loaded this CapEx to match the timing of our IWANT rollout in Q3. Owning and operating advanced data centers is a sustainable competitive advantage for PACOM, particularly for clients who have reservations about opening up their critical data to external LLMs. IWANT, hosted by PACOM, only draws from PACOM's single database, which eliminates conflicts created by inconsistent or duplicative external data sets, significantly improving data integrity and the quality of the user experience. Thanks to our product innovation and our focus on world-class service, client satisfaction trends remain strong. We provide high-touch personal service, and our clients appreciate our service levels now more than ever. We complement our high-touch service model with full solution automation, which drives service operation efficiency. As a result, we've seen a 20% to 30% year-over-year decline in internal tickets and inbound client call volume. These are positive influencers on client satisfaction. With our strong third quarter results and the outlook for the remainder of 2025, we are set to deliver a milestone year with over $2 billion in total revenues, all through organic growth and near record level adjusted EBITDA margins. Paycom has been leading our industry in innovation and client ROI achievement since we were founded. Now, with automated products like iWant, Betty, and Gone, we are well positioned for continued strong performance in the future. I want to thank all of our employees for their consistent contribution to Paycom's success and also thank our clients for trusting us to deliver unmatched value through full solution automation. With that, let me turn it over to Bob.

Thank you, Chad. Before I review our third quarter 2025 results and updated outlook for 2025, I'd like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis. We delivered strong third quarter results with total revenues of $493 million, up 9.1% over the comparable prior year period, and recurring and other revenues of $467 million up 10.6% year-over-year. Interest on funds held for clients declined 11% year-over-year to $27 million in the third quarter of 2025. GAAP net income in the quarter was $111 million or $1.96 per diluted share based on 56 million shares. Included in GAAP net income is a tax-adjusted one-time gain of approximately $26 million or 47 cents per diluted share related to the modification of our naming rights agreement. Non-GAAP net income for the third quarter increased 17% year over year to $110 million or $1.94 per diluted share. Profitability continues to increase as we realize operational efficiencies and deliver consistent margin expansion. Even with the 11% decline in interest on funds held by clients in the third quarter, our robust business model produced a 13% year-over-year increase in adjusted EBITDA to $194 million. Adjusted EBITDA margin in the quarter was 39%, representing a 150 basis point increase over the prior year period. Margin strength in the quarter was driven by automation and operating efficiencies in service, support, and in G&A. As we indicated in our last earnings call, we ramped up marketing spend in the third quarter to support our product and brand strategies, including marketing related to our recent launch of I Want. Feedback has been very positive, and we look forward to seeing the benefits from our marketing initiatives in the quarters to come. We continue to invest in the areas of sales, personal service, new client operations, and our product. With our solid Q3 results, we are on track to deliver on our full year plan for double digit organic recurring and other revenue growth and expanding adjusted EBITDA margins. Our single database and our owned and operated data centers are competitive differentiators that enable us to rapidly develop and deploy new automation to benefit all our clients. During the quarter, we launched our most advanced automation solution ever, IWANT, which is now enabled to our entire client base. To support IWANT, we front-loaded a significant CapEx investment in advanced AI hardware and equipment within our data centers. More specifically, we invested approximately $100 million into our data centers, and that spend is now largely complete. This investment provides us a multi-year capacity runway to support our AI initiatives. Over the last two months, we repurchased $319 million of common stock in the open market, buying back over 1.5 million shares, or almost 3% of shares outstanding as of the end of August 2025. Since the beginning of 2023, we have returned over $1 billion to shareholders through our buyback and dividend program. During that period, we repurchased 4.1 million shares of common stock for $806 million, or approximately 7% of our 2022 year-end shares outstanding. We paid approximately $213 million in dividends. We still have approximately $1.1 billion remaining under our buyback authorization as of October 31st, 2025, and the revolving credit facility of $1 billion available for us to execute on. Earlier this week, the Board approved our quarterly dividend, 37.5 cents per share, payable in mid-December. Even with these significant uses of cash in the quarter, our balance sheet remains very strong. We ended the third quarter with cash and cash equivalents of $375 million and no debt. The average daily balance on funds for clients was approximately $2.5 billion in the third quarter of 2025, up 9% over the prior year period. Now, let me turn to guidance for 2025. Based on our strong year-to-date results, we are well-positioned to meet our full-year revenue and adjusted EBITDA guidance ranges. We continue to expect total revenue to be between $2 billion, $45 million, and $2,055,000,000, up 9% year-over-year at the midpoint of the range. Within revenues, we expect organic full-year recurring and other revenue to be up 10% year-over-year and interest on funds for clients to be down 10% year-over-year to $113 million, assuming one additional rate cut later this year. Our full-year adjusted EBITDA guidance range is $872 million to $882 million, representing year-over-year adjusted EBITDA margin expansion of 160 basis points to near record levels at approximately 43% at the midpoint of the range. Other forward-looking items include full-year GAAP and non-GAAP tax rates at 27% and 26%, respectively. and stock compensation of approximately 7% of revenues. We delivered strong results in the third quarter and reinvested our capital into data centers, while at the same time returning significant cash to shareholders through buybacks and dividends. 2025 has been a strong year, and we are well positioned for robust 2026 and beyond. With that, we will open the line for questions. Operator?

Thank you. At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. In the interest of time, we ask that you please limit yourself to one question and one follow up. We'll pause for just a moment to compile the Q&A roster. Our first question today comes from Ramo Lengchao from Barclays. Please go ahead.

Perfect. Thank you. Chet, one question I get a lot from investors here at the moment is that historically your beat levels were a little bit higher. Can you speak a little bit of what you're seeing in terms of economy, et cetera, that might change the situation there? Because you get used to a certain track record and this looks like a slight departure from them. Thank you.

Yeah, well, you know, 2025, we did change the way we guide. We broke out recurring revenue. We broke out our interest tax. And, you know, we provided a wider range at the beginning. I would point out that, you know, since providing that initial range that, you know, revenues raised by $25 million and adjusted EBITDAs raised by $47 million at the midpoint so far this year. So, You know, I know that people might want a little bit different type of number. I will say that I'm very proud of the hard work that we've done and are doing, and I believe the accomplishments that we've made both this year and last year really set us up for a strong foundation for a future growth opportunity. So, you know, I would say that we didn't really guide to beat by certain amounts. I would say that we came out with a good guidance throughout the year. you know, we were able to raise. And I feel like 2025 is going to be a good year for us.

Okay, perfect. And then on terms of I-1, that was one of the highlights from the HR Tech Conference that we saw there. How does that drive extra conversation for you? Because that was, you know, you were very early in the market. It seems like you're relatively unique in the market. What do you see in terms of what the Seedless guys are reporting back to you in terms of you know, how that helps in terms of lead generation, pipeline build, et cetera. Thank you.

Yeah, so while we're seeing a complete change as new employees are added onto our system, most of them are utilizing the IWANT versus any level of navigation. We've been able to engage the C-suites into the system. Again, these types of users, you know, at the C-suite level and administrative level at some level needed the information and was always able to receive information through others that work for them. But with IWANT, they're able to do it directly. I mean, as far as being first, I've heard people say they have AI. I've seen a brochure. We don't experience that when we're working with their clients. And, you know, our AI initiatives would have cost us, for our full capacity opportunity, about $25 million a quarter. So, you know, we've spent about $100 million this year setting it up ourselves, which we've done all of our own database and our own data center since 1998. So I don't know who our competitors are using for AI, but it sounds like they got a really good deal on it.

Thank you. Our next question comes from Mark Marcon from Bard. Please go ahead.

Hey, good afternoon, and thanks for taking my questions. With regards to I-1, I also demoed it at HR Tech with a group of investors, and I thought it was really slick. I'm wondering, can you talk a little bit more about, like, what you're seeing in terms of the usage pattern? You mentioned, you know, that you're seeing more executives using it, but like how frequently? You've got some pretty good data capture in terms of, you know, being able to track how people are using it. Like how broad is it at this point? How many times are you seeing executives using it? Are all of them using it? And a little bit more just on the, you know, in terms of what you're hearing from the field in terms of sales. with regards to the potential for the selling season with it.

Yeah, and so when you think of IWANT, you think of it as an easier way to access the value that's there. You know, a lot of what we're focused on right now is decisioning automation and full automation of our system, just due to decision fatigue that's out there right now everywhere. You know, it's not that they're tired of making decisions. In many cases, they've just given up. And so When you think of I want, you think of it as an easy way to access that value. In answer to your question, you know, it changed if you were a current user of our system and you were used to going and utilizing it. Well, it's an easy-to-use system already. And so it changed your behavior a little bit from that standpoint and kind of widened the aperture on what you're able to do. But if you're a new user being added onto our system, meaning you're a new employee, meaning you're just now gaining access to this system. It's your predominant way to use our software. And so, you know, as we look into the future, I would expect we would see more and more people, you know, utilizing iWant as a way to access and navigate through our system in order to make changes and receive information than what you would, you know, those that are actually navigating through the traditional way.

Great. And then can you talk a little bit about your cost of service? If we take a look at your operating cost of revenue, you know, have a pretty nice sequential decline, significant decline on a year-over-year basis. Can you talk a little bit about those efficiencies? And then, you know, there were some press reports with regards to, you know, some changes. Are those going just in terms of personnel? Are those falling into the fourth quarter, and how should we think about that?

Yeah, I mean, any changes that we've had this will primarily, the benefit for that will receive in 2026. Of course, we're, you know, we're very aggressive on what we're doing now, you know, focused on our growth and focused on other initiatives. And so, you know, I'm not saying all of that will fall into next year, but we have that there. You know, and look, we've got a backlog of development that's either already come out or is in the process of coming out, you know, which led us to reduce mostly administrative by about 500 people. And I just will say, I mean, letting people go for no fault of their own, you know, as a founder of this company, I mean, that just makes me sick in my stomach. I don't expect we'll go through that again. We do have plenty of work for people, but what I will say is we have always and will always seek to automate administrative tasks that slow down the flow or accuracy of data and information, but it doesn't always materialize into reduction of staff. And so we've always been focused on becoming more efficient in how we do things. And you're already seeing that materialize prior to any of these reduction impacts on our numbers.

Thank you. Our next question comes from Steve Enders from Citi. Please go ahead.

Okay, great. This is George Curacao. I'm for Steve. Thanks for taking the questions. Just wanted to follow up on the demand environment. If you could characterize what you saw out there, you know, in terms of sales cycles, retention, et cetera, any color commentary would be great.

Yeah, demand remains strong. I mean, we have a very differentiated product. You know, we're going at it a different way. And so demand remains strong. I mean, we still have less than 5% of the total addressable market, even here just in the U.S. And so, you know, we create the demand that's available to us. We do continue to capture it. You know, we do talk about retention once a year. We'll be reporting that next year. I will say how proud I've been of our people and all the work that we're doing internally, and they know what we're doing. And we do expect all this work. to have a meaningful impact on the value that clients are achieving. And then, you know, in turn, over time, we would expect that to have a favorable impact on retention as well.

Okay, great. And then I wanted to follow up on the $100 million in capbacks you called out for data center and AI investments. You know, looking at your free cash flow number, I think we wouldn't have guessed that that was so big. Maybe you can Is it right to think that your free cash flow number X that, you know, we should think about that basically 100 million higher than what the reported number is? And then if you could remind us the big components of that spend and why you feel like you're now set up and that's sort of a one-time investment, if you will.

Yeah, well, you run certain models on your, you know, when you go through and you develop something and you're looking at the capacity, you're going to need to be able to run it. You have to run certain models of, you know, how many people are accessing it at the same time and And you have to make sure you have enough capacity. I mean, this is our system now. You know, we've got a lot of employees and users at our clients. And, you know, this is the predominant way they use the system. So, you know, the way they use our system has forever changed. And so, you know, we did have to make a spend in order to have that capacity for both what we're doing now and into the future. So we're in this business now. I don't expect that we would have any level even close to this type of spend, you know, over the next couple of years. But, you know, we are focused on growth. We are focused on providing the best product. And with us, I mean, it's not a brochure. It's something you actually utilize, you know, when we convert you onto it. And so when you're expecting that utilization, obviously you have to spend the money to be prepared to receive it. We chose to do that ourselves just because we've always been in the data center business since 1998. So we chose to add it that way. We actually think it will be accretive to our free cash flow conversion as we move into the future. And, again, to the extent our competitors do have AI, we're not running into it when we talk to their clients. And I don't know how they're paying for it because when we looked into it, you know, it was pretty expensive to rent.

Thank you. Our next question comes from Jason Salino from KeyBank Capital Markets. Please go ahead.

Great. Thanks, guys. This is Zane Meehan on for Jason today. I was just hoping for a little extra color on the 3Q recurring revenue results. I understand that it was a tough comp, but anything worth noting on that decel in the growth rate? you know, maybe possibly softer workforce levels in the platform, or is there anything one-time in nature that's worth calling out?

Yeah, there's nothing one-time in nature. I think if you remember back to Q2, we had certain levers hit in Q2 that may or may not could have hit in Q3. We also provided some color on what recurring revenue growth would be in Q3 at around 10.5%. And for the fourth quarter, we said that would be 11. So it came in right above where we thought it would.

Okay. Great. Thanks. And then just on the workforce levels, I mean, was that in line with expectations? Or, I mean, one of your competitors yesterday talked about black for the rest of the year. Is that how you're thinking about it?

We've only seen stability in the employment numbers, and we're not seeing it react any differently than what it has in the past with the exception of the COVID time period.

Thank you. The next question comes from Alex Zukin from Wolf Research. Please go ahead.

Hey, thank you for taking the question. This is Jason John for Alex Zukin. More of the high-level question you've talked about, you guys are less than 5% penetration right now. What is the latest thinking on how to actually accelerate that new logo acquisition and, at the same time, maintain double-digit recurring growth, even beyond the FY25 time frame? And where do you see the greatest white space opportunity in terms of modules, customer sets, and so on?

I think our biggest opportunity is going to come from new logo ads. I mean, we're very focused on that right now. We're streamlining the ability for our prospects to see the value a lot easier. You know, we've shifted the value in what we're focused on. I would say shifted, enhanced the value that our clients can receive. We're seeing that. I mean, we have clients that have left that come right back. And we have clients that are getting great value out of the software now, and so I think it's our opportunity as we move forward to continue to make it easier for prospects to buy from us, which you have to have enhanced sales skills, and you have to have a product that actually delivers the value that you're promising. And I feel really good about the work that we've done in both of those areas that set us up really well as we continue into both next year and the future.

Great. Thanks. And as you previously mentioned that the FY25 free cash flow will be similar to last year. And given your comment that the AI-related CapEx investments are largely completed in this quarter, does that free cash flow outlook still hold? Should we view that 3Q as the peak order for the CapEx investment?

Yeah.

Well, I was just saying I don't know of any major CapEx, you know, opportunities for next year or even the year after from the CapEx perspective.

Thank you. The next question comes from Daniel Jester from BMA Capital Market. Please go ahead.

Good evening, everyone. Thanks for taking my question. So I want to, you know, spend a moment on the product. And now with iWanted, you have executives using the product more. You know, are there opportunities in your mind to, beyond just AI, build more products on the platform which serve a broader set of use cases with your clients?

Yes, absolutely. We're focused on that. We're putting out a lot of automation right now. And, you know, we'll continue to release, you know, product sets that create value for our clients. And there's a lot of opportunity there. I mean, I'm not going to – you know, telegraph all the things that we're working on. But there's a lot more in front of us to automate than what we've even automated up to this point. Decision fatigue's for real. And, you know, when it exists in the HCM business and the HCM market and it exists in every single module that we have, there's opportunities to automate. And you do want to automate decisions where you expect consistent behavior and adherence. And so, you know, we've been focused on that as we've created our software. We're getting a lot of positive responses from both prospects and clients around that. I think as you move into the future, we'll have a lot more of that. And, of course, then also we'll be automating a lot more areas of the HCM process.

Great. Thank you. And then maybe just a quick one about how you're seeing the new offices ramp and any change in your philosophy in terms of how you're thinking about adding sales capacity as we go into next year. Thank you.

You know, we have had changes in our focus for development of sales rep managers in our backfield. We are bullish on kind of what the next couple of years looks like in an effort to be able to expand and open up. more offices, all of that comes from success at the sales rep and sales manager level. And, you know, so everything we are doing is about generating greater success than what we've had in the past. And that's not, you know, this could be a record year this year. We've had a very successful year this year. But I do think there's opportunities with the overextended value of our product to really put a pour on the gas there. And we're focused on that as an organization right now.

Thank you. The next question comes from Jarrod Levine from TD Cowen. Please go ahead. Thanks.

In terms of I1, are there any initial signs of it driving increasing product attach rates to date?

Yes. Yes, with IWANT, the more of our product that you have that you're utilizing, the more access to the information that you have, so it becomes important in that, as well as with IWANT, you're eliminating all navigation as well, so you don't really need training on the system. Most new employees, they would come into our system and You know, they would have some level of training on how to use the system. We're just not seeing that with new employees coming onto the system. You just tell it what you want, and it takes it there. And so, again, sometimes usage patterns are hard to change, and I don't think someone should change their usage pattern, you know, unless there's an opportunity to be more efficient or get there quicker. And we're seeing that. with new people that are onboarded in the system. And then we've also seen that with traditional users that may not have been achieving full value for all the modules, you know, that they have.

Great. And then in terms of the 540 employees impacted by the recent layoff announcement there, can you talk about expectations surrounding annualized cost savings and how much of that will be reinvested back into the business?

Yeah, I mean, that'll be a part of our guide next year. Again, we're focused on automation. I do for that. As we come out with automation, it doesn't necessarily mean that you're displacing certain employment levels. It's not something I'd necessarily want to go through again. But I also think as we look into the future, we'll have opportunities to become more efficient without necessarily... you know, employees not being here for no fault of their own.

Thank you. The next question comes from . Please go ahead.

Great. Thanks for getting my question. Bob, just on the 4Q, I guess the implied 4Q guide, you talked about in the past that 4Q growth should be the highest for the year. and but the guide kind of slightly below what 2Q and 3Q grew at and given the 3Q strength, do you think 4Q would benefit from that? Is this just conservatism or is there something else that we should keep in mind for 4Q recurring revenue and is 4Q a good exit rate to think about for next year?

Yeah, it's not below, it's above the 3Q number. And I said earlier about Q2 where some things fell on either side and that could have happened in Q3. There's nothing in there that you need to be thinking about going into next year or into the quarter. We're happy with how that's ending up and the momentum that we've picked up over the last six months and going into 2026. We're trying to guide you. We're just trying to guide you what we can see right now. Reminder, Q4 has bonus runs and unscheduled runs, so We don't know what those will be yet.

That's fair and appreciate that. And just one quick follow-up. You talked about kind of spending on marketing for IWAT. How do we think about the timing of those kind of investments playing back from a top of funnel to conversion perspective?

You know, I mean, we spend very well on marketing. We measure it, you know, on a weekly basis. You know, our marketing spend is very strategic, and we would expect a return from our marketing dollars. There is a point where you can get a diminishing return off the amount that you spend, and we're always mindful of that, you know, as we focus on marketing and our growth initiatives for, you know, both fourth quarter and beyond.

Thank you. The next question comes from Joshua Riley from . Please go ahead.

All right. Great. Thanks for taking my question. If you look at the strong bookings that you've had over the last few quarters, just curious, you know, what's the trajectory been of how this has been translating to revenue here in Q3 and Q4? And did some maybe more of the starts from earlier in the year get pushed to Q4 or 2026? Just kind of wanted to get a sense of, you know, how that may be impacting the upside to the revenue here in Q3?

No, I mean, when a deal starts in a quarter matters. If I start the deal with the very first of the quarter, I get 100% of the revenue dollars for that quarter. If I started the last month of the quarter, I'm getting a third of the revenue dollars for that. So at any given quarter, you have some of that happen. But I don't have anything to call out of any changes of what we expected or or any difference from what we expected out of book sales and starts for third and fourth quarter?

Gotcha. That's helpful. And then, you know, I'm guessing I know the answer to this, but just want to check and see, has there been any difference in the demand dynamic between the high-end or larger customer opportunities versus the mid-market or more SMB opportunities out in the market? Thank you.

No, I think the demand's there. You know, these things are always controlled by us. You know, we create our own demand, and we only have less than 5% of a total addressable market. That's something we've been focused on. It's something our group's done very well with, and I would just say we're working very well as a group right now and all focused on the same thing.

Thank you. Our next question comes from Siti Panagrahi from the Suho. Please go ahead.

Hi, this is Phil on for Siti. Thanks for taking my question. It sounds like Eidwan is pretty differentiated in the market. Is there an opportunity to eventually maybe monetize the product more directly, or should we view this as more of like a retention and module cross-out play?

Well, Eidwan came out in July, and we have 100% of our clients and all of their employees So, you know, I would think that you would kind of look at the monetization of IWANT coming through increased sales and increased retention as we move forward over time with the differentiated strategy. Again, IWANT helps you access value and automation that's been created. So, you know, IWANT's a part of it, but there's a lot more there of value Again, it's not something I want to sit here and telegraph of all the things that we're doing. But all of that to say is if you're talking to our clients today, you know, I think you're going to find a different value achievement that they have today maybe than what they had a couple of years ago. And I think as you look into the future, you know, that continues to accelerate.

Got it. Thank you.

Thank you. Again, if you would like to ask a question, please press stars and the number one on your telephone keypad. Our next question comes from Madeline Brooks from Bank of America. Please go ahead.

Great. Thanks so much for taking my question. Maybe more of a high-level one here. If I think about the stock performance year to date and the catalysts that are kind of on the horizon for the stocks, What I'm kind of thinking is like, look, right, we're getting over some execution strategy here, right? Our sales force is getting more effective now. We should be lapping that data center bailout expense. So free cash flow should be going back up, right? These are all paddles for the stock. But it feels like from this quarter, the numbers are leaving a little bit to be desired. But the opportunity is there for the taking, right? It's really mostly here on execution. So I guess I'm just wondering, you know, What, from an execution perspective, could go right over the next couple quarters to really kind of maybe get growth back up to that 12%, 14%? We're also going to see this influx in cash flow. And maybe what is also kind of viewed as a challenge or what might make it difficult to get there? Thank you.

Yeah, well, we're focused right now on revenue growth. I really feel good about all the work that we've done to set ourselves up in every other area. And so we're really focused on that. That doesn't mean we're not focused on product innovation and we're not focused on service and the full client value achievement. I just feel like we've set ourselves up very well now to attack the revenue growth opportunity. I'm not confirming what our growth rates are going to be next year and we're not setting guidance right now. But what I will say is that over the last two years, we've done a significant amount of work that needed to be done throughout our organization, and as we sit here today, we're all focused on one thing, and that's capturing more market share, and that's available to us now. We have a very differentiated product. It's meaningful. It's not a brochure. It's something you actually achieve value from once you start using it. And so as time goes on, I think we're going to have more and more opportunities to create greater distance. I do think the more growth you have, obviously, with strong margins, both operating and just to give it to another organization, that's going to be accretive to the rest of our financial profile, including free cash flow conversion and a lot of the other things that you spoke about as we look into 2026.

Thanks so much.

Thank you. Our final question today comes from Jacob Smith from Guggenheim Securities. Please go ahead.

Hey, thanks for taking my question. You talk about IWANT moving the impediments to value for customers with no change management required to use it. We see some AI systems out there that users may use initially but then go back to how they've operated before. Can you share a little bit about the ramp and consistency of usage you're seeing so far? I think that would be helpful in demonstrating the stickiness of the product. Thanks.

Sure. Well, IWANT's a quicker way to access This data and information, first of all, it's the only way to access it for certain people because they were never set up on any of the systems. I, as the CEO, I'm not set up on our benefit system to go run benefit information. I'm not set up on our applicant tracking or talent acquisition system. I'm not set up on our payroll to run all the payroll stuff or HR or any of it, expenses, any of it. With IWANT, I can go in and I get access to everything. I don't need to know how to use it. I don't need to know how to do anything. I just tell it the information that I want. If I'm needing to navigate through something as an employee or a manager or what have you, same thing. I can both access information or it'll put me where I need to be to be able to make these changes. And so, you know, we're continuing to both do that through IWANT as well as The functionality you're accessing is more automated today as well. So you really attack it from both sides. But I want is removing the impediments of usage that were there in any level of complicated usage and it speeds everything up. And so you do see new employees utilizing it because it's just a much quicker way for them to either get to where they need to go or be able to pull information. We're not seeing people use it a couple of times and then stop using it. I will say that, you know, when you looked at it in the early days, people didn't know how to use it. You know, if you ask I want where the closest pizza restaurant is to you, you know, it's not going to be real successful in answering that question. And so people had to kind of learn how to use it to their benefit. You know, it's been a short period of time. Again, we've had I want out since July. Every client we have has it and all their employees do now.

And just on gross margins, are you guys doing anything to optimize the usage of GPUs to better handle the millions of queries you're already seeing, whether it being the underlying LLM or just teaching users what they can and can't do? And, you know, can that over time potentially extend the runway of these GPU investments as you get more experience running these workloads in your own data centers?

Obviously, there's a lot you have to do to optimize. It matters how many times you're hitting it. It matters how you're filtering through. We use these things to also look at non-response rates and everything else. There's a lot that we go through to be able to analyze. This is a daily analyzation of what's going on within our product. So I don't want to describe everything that we're doing. It does matter, though, how you develop something to how much capacity of GPU you're going to actually utilize or need. And, you know, we've gone through those processes. That's kind of what I talked about. You have to load test, for lack of a better word, what your expectations are on simultaneous inquiries and responses. And so, you know, we've run through that and obviously we work to continue to make it more and more efficient as we move forward. Again, we did make a significant purchase in what we went to set up. We didn't set up a little bit of a process here. We knew 100% of all of our clients would be on it. And so, you know, we made the purchase to meet that. We also looked at utilizing public cloud type data centers, if you will, to be able to host for us in utilizing their GPUs. And, you know, with where we see ourselves going in the future and what the costs were associated with just being able to handle our current load, initial load for I1, you know, we felt it better for us to go ahead and just set up and buy our own. Plus, that way we have control over it. And, you know, it's operating just as all the rest of our business has for the last 27 years of operating around data centers. So it's really worked for us. I do think it's going to be a key differentiator into the future. And I think as our competitors actually, you know, take it from a brochure and an earnings call to install it at a client level, I think you'll start to see maybe either some changes in their financials or, you know, what they do with that. But, you know, our AIs cost enough money. And you saw that being spent in the third quarter.

Thank you. This concludes the question and answer portion of today's call. I'll now turn the call back over to Mr. Chad Richardson for closing remarks.

All right. Well, I want to thank everyone for joining the call today. We look forward to speaking with many of you at the UBS conference on December 1st in Scottsdale and the Barclays conference in San Francisco on December 10th. I'd like to thank our employees for their contributions throughout this year and our clients for their continued commitment to Paycom. With that, operator, you may disconnect.

This concludes today's conference call. You may now disconnect your lines.